Morgan Stanley: Global Oil Markets to Get Rocked by Huge Oversupply in Gasoline

Okay, try to stay with me on this one for more than a few seconds. As the good analyst from Morgan points out, the true demand for crude is the refineries. They buy the stuff, refine it, then sell it to you. Well, apparently there is a very grave cause for concern, as an oversupply of gas stocks threatens the very fabric of western civilization.

Cliff notes version:

Gas inventories are at 5 yr highs.
Crude oil demand trending below refined product demand for first time in three years.

Doom

Any questions?

The global oil market is “severely oversupplied” with gasoline — with stocks at a five-year high — serving as a blow to crude prices from next month, reckon Morgan Stanley analysts led by Adam Longson.

In a report published on Sunday, the analysts foresee “worrisome trends” for oil supply and demand, led by refineries generating too much gasoline in recent months. Faced with the need to cut back on capacity utilization to protect profit margins, these refineries are set to crimp crude oil purchases and drag prices lower, the analysts say.

“Crude oil demand is trending below refined product demand for the first time in three years,” they write. “Refineries are the true consumer of crude oil, and crude oil demand is ultimately more important than aggregate refined product demand for oil balances. Given the oversupply in the refined product markets, fading refinery margins, and economic run cuts, we expect crude oil demand to deteriorate further over the coming months.”

Refinery stocks have been ravaged this year, with shares of WNR off by 40%. Others in the space, such as ALJ, HFC, VLO and DK sport similar losses.